HOUSTON – Just when we thought 2020 was behind us, along comes tax season forcing us to look back. Millions of Americans lost jobs, collected unemployment, or took freelance gig jobs just to get by. Fortunately, there are some COVID tax breaks and credits for people who fall into those categories.
People who worked gig jobs or were other self-employed in 2020 will receive a 1099 instead of a W2. The form is for folks who earned money but didn’t pay taxes on those earnings.
AARP volunteer tax preparer Bart Hatfield says those workers should have put aside some money to pay those taxes. On average, you will owe between 14% and 15% of what you earned for social security taxes.
Then there are the federal income taxes too. If you don’t have the money when it’s due on April 15, Hatfield says a new rule this year will give you some extra time.
“It allows you to defer the social security tax for self-employed people off of your current income tax, but you have to pay 50% back by the end of the year,” he explained.
If your freelance gig had you driving, Hatfield says he sees the same issue come up with these clients every year.
“One of their big problems is the mileage that they get on their forms that their employer gives them includes both commuting and business mileage. And only business mileage is deductible, Hatfield said.
If you didn’t keep a log noting commuting/personal miles and business miles, you will need to estimate them.
Two major credits for self-employed people
The Family Leave Credit and the Sick Leave Credit will help you if you took time off because you had covid, you had to quarantine, or if you have to care for a family member or child because of COVID and that caused you to miss work.
All you need to know is how much profit you made from your business last year and how many days of work you lost. IRS software calculates how much you’ll get. The credit can be up to $10,000.
You will owe taxes on your unemployment benefits
Look out for your 1099 if you collected unemployment. You will owe taxes. The Texas Workforce Commission only withholds taxes if you asked them to. Even then the maximum withholding is just 10%, so you will owe more.
Good news!
If you had to take money out of a 401k or an IRA last year, you get a break. The IRS is not making you pay the 10% penalty on the amount you took out.